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Alder Rises From Ashes of Layoffs to Become Seattle Biotech Force

at the lab of Jim Cregg, a professor at the Keck Graduate Institute in Claremont, CA.

The idea was interesting, but raw. Biotech companies had basically given up on yeast as a mode for most drug manufacturing years ago. Some smaller, simpler molecules like insulin for diabetics had traditionally been manufactured in yeast, but as I pointed out in a Seattle Times feature in July 2006, antibodies are about 15 times the size of insulin and have complex 3-D folding patterns that must be consistent for the FDA and physicians to accept as pharmaceutical-grade.

So while making antibodies in yeast sounded good, drug companies had only been able to consistently make smaller antibody fragments. The big drug makers had also used conventional baker’s yeast in the early days of biotech, but scrapped that idea when they saw it ferments and produces ethanol, ruining the drug, Cregg has said.

So Cregg’s lab conceived of using a second-generation strain of yeast called Pichia pastoris which was genetically modified so it wouldn’t ferment. Alder wanted a system in which yeast would produce a full antibody, not just fragments. The plan was for Alder to support some experiments at Keck, and in exchange, it would get a worldwide license to develop the technology as a platform for a whole new mode of antibody drug production.

“Jim (Cregg) understood the yeast, and we understood the antibodies,” Schatzman says.

One of the big hurdles that Alder needed to clear early on was to demonstrate that if you took the same gene sequence for an antibody, and plugged it into a yeast host, that it would come out with the same consistent properties of an antibody that came from standard mammalian cells.

This was all going to take time, money, and support. And the Alder guys were first-time entrepreneurs, without any support from investors. So Schatzman sought some advice from an experienced friend—Clay Siegall, the co-founder and CEO of Bothell, WA-based Seattle Genetics (NASDAQ: SGEN).

The two had known each other from when Schatzman ran the Celltech R&D operation, and the two companies had collaborated. Siegall was impressed with the caliber of the science at Celltech, and agreed to hear Schatzman describe the idea. “I can remember Randy saying, ‘You’ve started and built a company, can you talk me through the things I need to consider?'” Siegall says.

Over a series of lunch and breakfast meetings, Siegall offered some advice. Things like how to get legally incorporated, and who to call in the venture capital world.

Even though Alder was just a little more than a concept, Schatzman marvels at the help he got. Siegall personally offered some of Seattle Genetics’ office space to incubate the company for only a “modest” amount of equity shares on a monthly basis. Sonya Erickson, a corporate attorney then at Venture Law Group (now at Cooley Godward Kronish in Seattle), helped Alder get incorporated in exchange for a “little bit” of equity, Schatzman says. And Paul Abrams, the CEO of Bothell, WA-based Ceptyr, set aside some lab space for Alder’s early experiments in exchange for a little equity.

“You had all these people who were accepting paper that was worthless,” Schatzman says. “People trusted us that there would be value here someday.”

During those early days, Siegall (who’s now a director of Alder) remembers how he got questions from VCs about why he would take this fledgling company under his wing. What did he really see … Next Page »